Five '1-Percenters' That Have Milked The Stimulus4:15 PM EST Fri. Jan. 18, 2013
With President Barack Obama set to be sworn in for his second term on Jan. 21, it is a good time to look at just how he handled what was one of the biggest crisis in his first term in office: the greatest economic downturn since the Great Depression.
President Obama urged Congress to pass a sweeping federal stimulus bill and signed the $840 billion American Recovery and Reinvestment Act into law on Feb. 17, 2009, promising that the legislation would create or save 3.5 million jobs over two years.
A six-month CRN investigation into the job creation impact of ARRA found a big discrepancy between the claims from President Obama and his administration and the actual job creation tied to the government spending.
Here we present a look at the top five 1-percenters that milked the stimulus during the president's first term, an exclusive report that originally ran on the CRN Tech News App for the iPad.
Google founders Larry Page and Sergey Brin, each of whom have a personal fortune estimated at $20.3 billion, hardly need government backing to finance a renewable energy venture. But that is just what they have gotten from President Barack Obama's green energy offensive and the $840 billion American Recovery and Reinvestment Act.
Brightsource Energy Inc., which counts Google among its investors, said last April that it had received $1.6 billion in loans guaranteed by the U.S. Department of Energy's Loan Programs Office for the world's largest solar project under construction -- the Ivanpah Solar Electric Generating System in California's Mojave Desert. At the time the federal loan guarantee was announced, Google itself also became a private equity investor in the project with a $168 million investment.
In addition to the $1.6 billion loan guarantee, the Ivanpah project has received $267.62 million in ARRA funds through BrightSource Engineering & Construction, according to the Recovery.gov website.
CRN has spent the past six months looking specifically at where ARRA funds were spent on technology projects, trying to determine how many jobs were created. CRN has spoken with dozens of executives and examined countless government documents. As part of that investigation, CRN looked at whether the funds benefited super-wealthy "1-percenters" with the means to finance on their own the initiatives undertaken with ARRA funding.
Neither Page nor Brin nor any of the individuals we named as the top five beneficiaries of the legislation were willing to be interviewed on the impact of the stimulus funds on their own investments, companies or on the overall U.S. economy.
Peter Schweizer, a William J. Casey Fellow at the Hoover Institution, Stanford University, and the first to expose the Google founders' windfall in his book, "Throw Them All Out: How Politicians And Their Friends Get Rich Off Insider Stock Tips, Land Deals And Cronyism That Would Send The Rest Of Us To Prison," said the U.S. government's investment in BrightSource is just one example of crony capitalism on a "massive scale" that has been practiced by the Obama administration.
"What happens a lot of times with crony capitalism is you end up getting middle-class taxpayers, in effect, subsidizing the business ventures of billionaires," said Schweizer. "I think it is hard in any fashion to try to determine why that is a good thing or to say that is a good thing. They [Page and Brin] are obviously very, very smart. They took risks in developing Google. They got handsome rewards. And if they feel that they can have some more success in the energy sector or other sectors, let them. But don't expect the taxpayers to subsidize your financial risk taking."
NEXT: The Role Of Government in IT
The federal government's massive investment in green energy represents a dramatic shift in the role the government played in 20th century technology breakthroughs such as the PC, which powered astronomical gross domestic product (GDP) growth.
The PC boom began with Intel's development of the first microprocessor. Intel was founded in 1968 by engineers Gordon Moore and Robert Noyce, backed financially from legendary venture capitalist Arthur Rock with just $10,000 and $2.5 million in convertible debentures. Intel received no direct funding from the government. The Obama administration's green energy funding bonanza represents a move by the federal government to directly fund green energy technology businesses.
"A lot of the scientific support for technology in the past came either in the form of government research efforts or efforts that focused heavily on basic research," said Schweizer. "What you have now is the federal government essentially picking winners and losers. They are choosing to back certain types of solar projects rather than not back other solar projects. So they are deciding de facto where the money is going to flow."
Republican presidential candidate Mitt Romney attacked the Obama administration's aggressive renewable energy investments in solar and wind in the recent debate with President Obama. "You put $90 billion -- like 50 years worth of breaks -- into solar and wind, to -- to Solyndra and Fisker and Tesla and Ener1. I mean, I -- I had a friend who said, you don't just pick the winners and losers; you pick the losers."
A number of economists and researchers have pointed to the Obama administration's hard-charging drive to spend quickly on clean energy as a way to dig out of the economic crisis. That subject is addressed in a preliminary review of ARRA's Clean Energy Package by Joseph E. Aldy, assistant professor of public policy for Harvard's Kennedy School. As an economist on the Obama Transition Team's energy and environmental working group, Aldy said in a research paper that "as a reflection of how quickly the stimulus target moved during this time, in one meeting with the shadow OMB [Office of Management and Budget], I was informed that, 'we were not spending enough' on the clean energy package, which at that time was smaller than the final version in the Recovery Act."
The Energy Department ranks No. 6 on the list of the most funds paid out on the Recovery.gov website, with $27.70 billion in funds paid out so far, according to Recovery.gov. With data from the Recovery.gov database, lobbying expenditure and campaign contribution data from the Center for Responsive Politics, entries from the White House visitor's log, and interviews with economists and government watchdogs, CRN ranked the top five politically connected 1-percenters who benefited from ARRA funding.
Once again, they all refused to be interviewed for this story. But several sources close to them maintain that characterizing these individuals as benefiting from the stimulus is unfair given the need for government investment in clean energy, infrastructure and technology.
What's more, these sources said, there is a fine distinction between loan guarantees provided by the government and equity financing.
"The debt actually comes from the banks, but it is backed by the government so it is not actually an outlay of money on behalf of the government," said one source, who refused to go on the record with regard to the loan guarantees provided by the government. "We have not been involved in any of the loan guarantees for any of the projects we have invested in. We were not involved in the loan guarantee process. Those loan guarantees were already in place when we invested in these projects. We provided equity financing."
Here is part two of our three-part series on ARRA, looking at the top five individuals who benefited from the legislation.
NEXT: Steve Westly
NO. 5: STEVE WESTLY
On his company’s website, the former controller and chief fiscal officer of the state of California boasts that during his four-year term overseeing California’s finances he "led an effort to commit more than $1 billion to clean technology investments."
Westly's move into the venture capital business came after an unsuccessful run for governor of California in 2006. "Obviously I would have loved to have been governor," said Westly in a 2007 interview posted on YouTube . "But if you can't be governor, by God being in Silicon Valley I think is the next best thing."
The next best thing includes big bets on clean technology ventures that received millions of dollars from ARRA. A review of the Recovery.gov database shows that five companies backed by The Westly Group were awarded $104 million. They are:
Enerkem, a Montreal waste-to-biofuels company, was awarded $50 million in ARRA funds. So far Enerkem has $3.13 million of the ARRA funding and reported 67.9 jobs, according to the Recovery.gov website.
Soladigm, a Milpitas, Calif., developer of next-generation green building solutions, was awarded $6.93 million. So far Soladigm has received $3.46 million and reported 32.1 jobs.
Greengate Power, a renewable energy project developer based in Calgary, Alberta, Canada, was awarded $2.36 million as a subrecipient, funds for which it is not required to report jobs funded by the monies.
Amyris, a renewable energy provider, was awarded $24.34 million.
EdenIQ received a $20.4 million bio-ethanol grant.
Westly refused to comment on the funding received by companies backed by The Westly Group.
"We believe that with the Obama administration and other governments in Western Europe and Asia committing hundreds of billions of dollars to clean tech there has never been a better time to launch clean tech companies," read a "What We Do" posting on The Westly Group website some time ago. "The Westly Group is uniquely positioned to take advantage of this surge of interest and growth."
The reference to the Obama administration has been taken out on the current "What We Do" posting on The Westly Group website. The new posting on the website reads: "With governments in the U.S., Western Europe and Asia all committing billions of dollars to cleantech, there has never been a better time to launch cleantech companies. The Westly group has an unmatched record of success in bringing together private and public assets for cleantech enterprises."
Onetime Westly Group-backed ventures that also received funds include Tesla Motors, which was awarded a $465 million "loan arrangement" under the Department of Energy's Advanced Technology Vehicles Manufacturing Loan Program.
The Westly Group's government-funded good fortune comes with Westly given a seat at the table acting as a "representative for the venture capital industry" on Secretary of Energy Stephen Chu's Advisory Board.
Westly also was a bundler for the Obama campaign in 2008. In 2008, Westly collected $500,000 in donations for Obama, according to the Center for Responsive Politics. Westly is also listed as one of Obama's 2012 bundlers with $425,100 in contributions, according to the Center for Responsive Politics.
Westly is listed on the White House visitor's log twice, attending the June 2, 2010, Library of Congress concert where the president honored Sir Paul McCartney with the third Gershwin Prize for Popular Song, and a China State Dinner honoring President Hu Jintao on Jan. 19, 2011.
NEXT: Warren Buffett
NO. 4: BERKSHIRE HATHAWAY CHAIRMAN AND CEO WARREN BUFFETT
When legendary investor Buffett acquired the Burlington Northern Santa Fe Corp. (BNSF) in November 2009, the largest acquisition in the history of Berkshire Hathaway, he called the $34 billion deal a "huge bet" on the company, the CEO, the team, and the railroad industry. But it was bigger than that, said Buffett at the time in a press release.
"Most important of all, however, it's an all-in wager on the economic future of the United States," Buffett said. "I love these bets."
That big bet has been backed up by the federal government in the form of six awards valued at a total of $67.73 million in funding from ARRA, according to the Recovery.gov website. That ARRA funding included a $17.3 million award in August 2011 to construct new remotely controlled high-speed crossovers to provide Amtrak passenger rail trains the "operating flexibility to move around the BNSF freight trains."
With the economic crisis in full swing, Berkshire Hathaway's lobbying expenditures soared from $1.25 million in 2008 to $10.38 million in 2009 during the height of the crisis, according to the Center for Responsive Politics. In 2010, Berkshire Hathaway's lobbying dropped slightly to $9.91 million and then dropped once more in 2011 to $9.58 million. BNSF's own lobbying expenditures amounted to $6.4 million in 2009, $5.41 million in 2010 and a peak of $6.78 million in 2011.
Berkshire Hathaway did not respond to requests for an interview with Buffett. But a BNSF spokesperson said in an email reply to CRN that a "simple review of the facts of all the projects listed on the website you reference clearly demonstrates that public agencies applied for the funds for public benefit, not for the benefit of the railroad involved. The language you reference on recipient status as 'prime, sub or vendor' from the project list validates that."
"The only project for which BNSF was listed as a prime recipient was the Burlington Bridge replacement over the Mississippi River," wrote the BNSF spokesperson. "The Coast Guard had ordered the railroad bridge to be replaced several years before the Great Recession of 2008/2009 and before ARRA ever existed, from a swing span to a lift span in order to widen the channel under the bridge for barge traffic in the Mississippi River. The only reason we were the prime recipient on that project is that we had to build the new bridge and then swap it out with the old one. More importantly, nearly half of the funds needed to replace that bridge were secured by the Southeast Iowa Congressional offices in the years prior to the ARRA and to Berkshire Hathaway's involvement with BNSF. In fact, construction was publicly announced and began a full month (9/21/2009) before Berkshire Hathaway had even approached BNSF (10/22/2009) about acquiring the railroad."
"On virtually every other project, BNSF was listed as a sub recipient or vendor confirming the secondary and cooperating role BNSF played to public agencies pursing public projects for public benefit," the BNSF spokesperson wrote. "None of them were done for the benefit of a private freight railroad and the applications, project descriptions and defined purposes all confirm that." NEXT: Warren Buffett Continued
In an interview with CRN, Jeff Matthews, a veteran investment manager and author of the best-selling e-book "Secrets In Plain Sight: Business & Investing Secrets of Warren Buffett," said there is simply no reason that a Buffett-backed venture should receive ARRA funds. "You have to ask yourself why a business associated with the most successful financial enterprise of our time needed help," asked Matthews. "Why they needed pork? The answer is they didn't. That's the whole problem."
Matthews, who has sat on both sides of the fence investing in companies as a professional money manager and as a former government official on the Finance Committee in Fairfield, Conn., called ARRA a classic case of the government "spending money fast and pissing it away."
"The sad part is that legitimate big companies, even Warren Buffett with Burlington Northern, got in on the act and got money," said Matthews. "The projects were something Burlington Northern probably would have done anyway and done it more efficiently if it was their own money instead of the government’s."
Buffett, who is listed on the White House visitor's log four times, also has prospered from his investments in big ARRA award winners General Electric and IBM, both of which were named by CRN as top beneficiaries of ARRA in the first part of this investigative report.
Buffett's $10.7 billion investment for 64 million shares in IBM came to light in November 2011. Buffett has since increased that IBM stake to 66.6 million shares valued at more than $13 billion.
Buffett's $3 billion investment in General Electric was in the form of perpetual preferred stock with a 10 percent dividend. That GE investment came to light on Oct. 1, 2008, with Congress debating the $700 billion Troubled Asset Relief Program (TARP) to bail out troubled banks.
Buffett, who supported Obama in the 2008 campaign, is certainly not sitting on the sidelines in the 2012 campaign. In fact, the Berkshire Hathaway CEO has hosted a number of Obama fundraisers and is listed as providing "joint fundraising contributions" to the Obama Victory Fund 2012 of $65,800, according to a search of the Federal Election Commission database. Buffett is also listed as providing "joint fundraising contributions" of $30,000 to the Democratic National Committee in January 2012, according to the Federal Election Commission records.
President Obama awarded Buffett the Presidential Medal of Freedom on Feb. 15, 2011. Singling out the second richest man in the world, the president remarked: "When you look at the men and women who are here today, it says something about who we are as a people."
"When we award it to a Warren Buffett, it says we'd all like to be so humble and wise -- and maybe make a little money along the way," said President Obama.
Buffett is listed as No. 2 on the Forbes 400 list of richest Americans with a net worth estimated at $46 billion behind Microsoft Chairman Bill Gates with a net worth of $66 billion.
NEXT: John Doerr
NO. 3: JOHN DOERR
Doerr's storied investing career as a partner with Kleiner Perkins Caufield & Byers reads like a who's who of some of the best and brightest technology investments of the late 20th and early 21st centuries, ranging from Compaq and Symantec to Amazon and Google.
By 2008, however, Doerr was focused squarely on the green investing opportunity and he was looking for some help from the federal government.
Calling energy "the challenge of our generation and the scourge of the economy," Doerr’s advice for the new president at the Web 2.0 Summit in San Francisco just hours after Obama was elected was to make renewable energy the No. 1 policy initiative. "The most important thing he has got to do is kick-start a huge amount of innovation and research in energy," said Doerr.
"We invest less than $1 billion a year in renewable energy research," said Doerr, an Obama supporter who donated $4,600 to the Obama Victory Fund in August 2008. "That is contrasted with health care, which is $32 billion."
Doerr got his wish. The Obama administration has made green energy funding a top priority that has benefited venture capital companies like Kleiner Perkins and general partners like Doerr himself.
What's more, Doerr has become a key adviser to the president. He sat on both the President's Economic Recovery Advisory Board and the President's Council on Jobs and Competitiveness.
It is hard to pin down exactly how much in total Kleiner Perkins-backed companies have received in government funding through loans, contracts, awards and even tax credits. But here are seven Kleiner Perkins-backed companies and the money they were awarded, according to a review of the Recovery.gov website:
Amyris, an Emeryville, Calif., renewable energy provider, was awarded $24.34 million and reported 341.24 jobs, according to the Recovery.gov website.
AltaRock Energy, an energy production company based in Seattle, was awarded $28 million. So far AltaRock has received $6 million and reported 88.73 jobs, according to the Recovery.gov website.
Primus Power, a Hayward, Calif., smart grid storage company, was awarded $16 million. Primus reported 85.73 jobs on $3.34 million funds received on a $22.89 million award.
Aquion Energy Inc., an energy storage technology company based in Pittsburgh, Pa., was awarded $10.35 million.
FloDesign Wind Turbine Corp., a wind turbine maker based in Waltham, Mass., has received $8.32 million in funds as a subrecipient of funds that went to FloDesign customers like Western New England College.
Agrivida, a Medford, Mass., company developing crops to make renewable energy, was awarded $4.56 million.
Transphorm, a Goleta, Calif., maker of electric power conversion modules, was awarded $2.95 million. So far Transphorm has received $1.9 million in funds and reported 17.66 jobs, according to the Recovery.gov website.
NEXT: John Doerr Continued
In addition to those funds, Kleiner Perkins-backed electric plug-in vehicle sportscar maker Fisker received a $528.7 million loan award from the U.S. Department of Energy. Amonix, another clean-energy-backed Kleiner Perkins enterprise, took advantage of a $5.9 million clean energy manufacturing tax credit to build an $18 million facility in Las Vegas.
Doerr and other Kleiner Perkins executives would not comment on how much in total funds Kleiner Perkins companies have received from ARRA, how many jobs were created or the impact on the overall U.S. economy.
Stanford University's Schweizer said Kleiner Perkins-backed clean energy ventures have an "extraordinarily high rate" of success winning government funds given that less than 10 percent of the all the companies applying receive assistance.
"In this particular case you have highly risky investments in this sector and he has benefited from the political connections that he has enjoyed," said Schweizer of Doerr's success in the green energy sector. "This is extraordinary. I don't really know of any other single investment house -- and there are many that invest in green technologies -- that has anything even remotely approaching the success record that he has had in securing access to government money."
Doerr is listed on the White House Visitor's log for three appointments: Oct. 8, 2009, March 24, 2010, and March 9, 2011. Doerr's wife, Ann, is listed on the White House visitor’s log for four appointments: three meetings on May 27, 2010, including a social innovation fund event and a meeting with the president on July 18, 2011.
Doerr, a Woodside, Calif., resident, ranked No. 301 on the Forbes list of the 400 richest people in the U.S. in 2008 with an estimated $1.6 billion net worth before Obama took office, according to Forbes magazine. By the 2012 Forbes survey, Doerr ranked No. 179 on the list with a net worth of $2.5 billion, according to the 2012 Forbes 400 list.
NEXT: Larry Page and Sergey Brin
NOS. 1 AND 2: GOOGLE FOUNDERS LARRY PAGE AND SERGEY BRIN
|Larry Page and Sergey Brin|
Five years ago, Google founders Page and Brin declared that they were prepared to invest hundreds of millions of dollars to develop clean energy that would not only be good for the environment but would also reduce the company's soaring data center power bills.
Brin even held out the possibility that licensing fees from the ventures could be a new source of revenue for the company, while at the same time insisting that the goal wasn't to make a big profit.
Today, Google said it has invested more than $915 million in renewable energy. A number of those Google clean energy investments have benefited from ARRA.
Besides the ambitious Ivanpah project, among the other Google-backed clean energy ventures that have received ARRA funds are:
AltaRock Energy, the same energy production company that Kleiner Perkins invested in, which was awarded $28 million.
SolarCity Corporation, a San Mateo, Calif., national clean energy services company, which has been awarded $11.02 million.
Makani Power, an Alameda, Calif., airborne wind energy company, which has been awarded $3 million.
Potter Drilling, a Redwood City, Calif., company focused on hard-rock drilling technologies. Page and Brin refused to comment on the impact ARRA has had on the company, themselves, how many jobs have been created at Google-backed companies as a result of ARRA funds or the impact of the legislation on the overall economy.
"As is common with all major renewable energy projects in the U.S., the projects and companies we've invested in have involved various government incentives," said a Google spokesperson in an email reply to CRN. "We are not involved in efforts by these companies and projects to secure those incentives. We believe the incentives currently in place are important in driving private investment to advance the clean energy industry, and transform our economy away from fossil fuels. We're proud of the investments we've made and hope they encourage further development and deployment of clean, renewable energy."
The ARRA funding has come with Google's lobbying expenditures more than doubling from $4 million in 2009 to $9.79 million in 2012 with one-quarter remaining, according to the Center for Responsive Politics. The company's 2009 lobbying included five reports related to ARRA including lobbying on "renewable energy policies including investment in solar, wind, and enhanced geothermal technologies, federal energy standards and incentives, electricity grid upgrades (Smart Grid), and provisions to accelerate the commercialization of plug-in vehicles, including in relation to H.R. 1: American Recovery and Reinvestment Act of 2009," according to a filing on the Center for Responsive Politics.
For the last four years, Google has spent $26.83 million in lobbying expenditures, according to the Center for Responsive Politics. Google's Political Action Committee (PAC) is also on the rise. Google's PAC spending has soared from $287,836 in 2008 to $810,679 so far in 2012, according to the Center for Responsive Politics.
Google executives, meanwhile, have gotten a lot of face time at the White House according to a review of the White House visitor's log. Former Google CEO Eric Schmidt is listed on the log with 18 appointments, and former Google Director of Climate Change and Energy Initiatives Dan Reicher is listed as having eight appointments at the White House.
Finally, Google employees were strong contributors to the Obama campaign in 2008 and are doing the same in 2012. In 2008, Google employees and their families themselves or through the company's PAC contributed $814,540, according to the Center for Responsive Politics. So far in the 2012 campaign, that contribution number is $526,009, putting Google employees as the third biggest contributor in the form of employee donations, according to the Center for Responsive Politics.
Brin, meanwhile, is listed as contributing $35,800 to the Obama Victory Fund 2012 on Oct. 4, 2011, along with a $5,000 contribution to Obama For America on the same day and a $30,800 contribution listed to the Democratic National Committee, according to a search of Federal Election Commission records. Page is not listed as an Obama contributor in a search of Federal Election Commission records.
Both Brin and Page have increased their net worth during the Obama years. Brin had a net worth of $15.9 billion in 2008, while Page's net worth was estimated at $15.8 billion, according to the Forbes 400 list of richest Americans. On the 2012 Forbes 400 list, both Page and Brin's net worth is listed at $20.3 billion each.